Discounted Variable

As the name suggests, with this type of deal you pay a lower than normal variable rate for a fixed period of time, which can be as little as six months or as much as five years. Some deals keep the same discount for that period, while others gradually reduced the discount each year.

A discounted rate is worth considering if you don't mind that the your repayments will still rise and fall in line with interest rates in general, and you like the idea of paying less for your loan to begin with.

However, as with any loan, it's important to check the small print on a discounted variable mortgage (also known as a tracker mortgage). Although the interest rate may be set at a certain amount, for example, 0.75% below base rate for 2 years), your lender may specify a minimum rate that you will have to pay if the base rate plunges below expectations; which somewhat defeats the object of the tracker mortgage. Another thing to watch out for is extended early repayment charges, which may lock you in for a certain period of time after the rate control period and force you to pay your lender's higher Standard Variable Rate.